The University of Southampton
University of Southampton Institutional Repository

Book-tax differences and the persistence of accounting earnings

Book-tax differences and the persistence of accounting earnings
Book-tax differences and the persistence of accounting earnings
This study aims to examine the relationship between Book-Tax Differences and earnings quality i.e. earnings persistence in order to assess the usefulness of accounting earnings for decision making. Managers may have incentives to increase accounting or “book” earnings while simultaneously reducing taxable income, any difference in the two measures is termed the book-tax difference (BTD). As the measurement of accounting earnings and taxable income is based on two different sets of rules differences can arise because of permissible discretion in the measurement of accounting income representing genuine economic differences. However, differences could also represent earnings management or manipulation, e.g. an increase in accounting income without a corresponding increase in real assets. Consequently this has raised calls to conform accounting earnings and taxable income in an attempt to limit the misuse of the discretion and the deviation permitted between the two measures. Nevertheless, conformity is argued to cause a loss of accounting earnings informativeness which makes them less useful for decision making. Using an earnings persistence model this study aims to address: (1) Does the contribution of the BTD in the model differ from that of underlying earnings and if so, does the nature of the contribution depend on a short term or longer-term measure of the BTDs. (2) Further, when BTDs are disaggregated into their “temporary” and “permanent” sources does the nature of the contribution change. If BTDs behave differently from underlying earnings, this will support the retention of differing measures of accounting earnings and taxable income and more directly retaining discretion in measurement of accounting earnings.
Addeh, Rahma
34dc279f-6190-4171-b55c-82b0f1eca4dc
Addeh, Rahma
34dc279f-6190-4171-b55c-82b0f1eca4dc
Marnet, Oliver
6840910e-2e26-4e63-aa84-76c5c8d27877

Addeh, Rahma (2016) Book-tax differences and the persistence of accounting earnings. University of Southampton, Southampton Business School, Doctoral Thesis, 280pp.

Record type: Thesis (Doctoral)

Abstract

This study aims to examine the relationship between Book-Tax Differences and earnings quality i.e. earnings persistence in order to assess the usefulness of accounting earnings for decision making. Managers may have incentives to increase accounting or “book” earnings while simultaneously reducing taxable income, any difference in the two measures is termed the book-tax difference (BTD). As the measurement of accounting earnings and taxable income is based on two different sets of rules differences can arise because of permissible discretion in the measurement of accounting income representing genuine economic differences. However, differences could also represent earnings management or manipulation, e.g. an increase in accounting income without a corresponding increase in real assets. Consequently this has raised calls to conform accounting earnings and taxable income in an attempt to limit the misuse of the discretion and the deviation permitted between the two measures. Nevertheless, conformity is argued to cause a loss of accounting earnings informativeness which makes them less useful for decision making. Using an earnings persistence model this study aims to address: (1) Does the contribution of the BTD in the model differ from that of underlying earnings and if so, does the nature of the contribution depend on a short term or longer-term measure of the BTDs. (2) Further, when BTDs are disaggregated into their “temporary” and “permanent” sources does the nature of the contribution change. If BTDs behave differently from underlying earnings, this will support the retention of differing measures of accounting earnings and taxable income and more directly retaining discretion in measurement of accounting earnings.

PDF
Final PhD thesis - Rahma Addeh.pdf - Other
Available under License University of Southampton Thesis Licence.
Download (2MB)

More information

Published date: September 2016
Organisations: University of Southampton, Southampton Business School

Identifiers

Local EPrints ID: 402059
URI: https://eprints.soton.ac.uk/id/eprint/402059
PURE UUID: 48210f2e-3862-4a78-b4d3-348035233877
ORCID for Oliver Marnet: ORCID iD orcid.org/0000-0001-9450-2332

Catalogue record

Date deposited: 01 Dec 2016 15:29
Last modified: 31 Oct 2018 05:01

Export record

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of https://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×